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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Clearing and Settlement System

A clearing member has two clients. Client A is long 1,000 units and client B is short 600 units of the same stock futures contract, both through the same clearing member. The member's proprietary position is nil. How is the position of the clearing member computed for margin purposes at the clearing corporation level, given that client positions are not netted across clients?

The member's position is the gross 1,600 units, because margins are calculated client by client and long and short positions of different clients are not netted against each other. Netting is allowed only within the same client's own positions.

  1. ANet open position of 400 units long
  2. BGross open position of 1,600 units across the two clientsCorrect
  3. CZero, as long and short positions offset
  4. D600 units, being the smaller of the two positions

Explanation

Margins are computed on a client-wise basis, and positions of different clients are not netted against each other. The clearing member's exposure is therefore the sum of client-level positions, 1,000 + 600 = 1,600 units gross. Netting to 400 or 0 would wrongly offset different clients' positions.

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